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Comments on Dodd-Frank's position limits rule came from petroleum marketing, airline industries

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A handful of groups--including some backed by petroleum marketing firms, airlines and unions--were responsible for the great majority of some 13,000 comment letters sent to the Commodity Futures Trading Commission about a single proposed regulation mandated by Dodd-Frank, according to an analysis by the Sunlight Foundation.

The CFTC is expected to issue a final rule, which limits how many futures contracts an investor is allowed to hold in any one security, on Sept. 22, though the agency has yet to confirm that date. The position limits rule received one of the highest number of public comments in the agency's history. Advocates for the rule argue that excessive speculation in markets dealing with everyday consumer goods can drive up the cost of gas and food.

While considering the rule, agency officials held 161 meetings with outside groups. These included meetings with such financial trade associations as the Chicago Mercantile Exchange and the Securities Industry and Financial Markets Association, which were critical or cautious about the agency's proposal. These groups, however, apparently did not orchestrate comment-writing campaigns. In fact, the overwhelming majority of comment letters sent to the agency were in favor of tough position limits.

The Sunlight Foundation analyzed the comment letters using a new tool in development by Sunlight Labs. The tool helps identify documents that contain similar or identical language and should be ready for public release soon. The research showed:

•    More than 6,050 public comments came from a form letter distributed by a group called Stop Oil Speculation Now, which is backed by the airline and petroleum marketing industries. The letter states: “Time is of the essence, and I urge you to act quickly. Our pocketbooks and the broader economy depend on it.” The contact organization for the coalition is the Air Transport Association, which has reported spending $1.8 million on lobbying so far this year on a host of issues.

•    More than 2,230 comments came from a letter started by silver market analyst Ted Butler. He argues that the position limits on silver in the new regulation still are not stringent enough. In the form letters originally written by Butler, those leaving public comment ask: “Please institute a 1,500 contract (7.5 million ounce) position limit for silver.” Another 182 comments also ask for Butler's stricter limits for silver at 1,500 contracts or 7.5 ounces, but the form letter is worded differently.

•    At least 802 comments were modeled after a form letter distributed by Americans for Financial Reform, a broad coalition that includes consumer groups such as Center for Responsible Lending and Consumers Union as well as union lobbying powerhouses including the AFL-CIO and AFSCME. The group's letter starts with the line: “I urge you to curb excessive gambling in commodities markets like food an oil.”

•    At least 373 comments came from a form letter distributed by the Petroleum Marketers Association of America on a private website for businesses in that industry. It states that the rule “will play a critical role in reestablishing market fundamentals.” The association has reported spending $340,000 on lobbying to date in 2011, including efforts on derivatives reform.

•    At least 199 comments came from the World Development Movement, an anti-poverty nonprofit based in United Kingdom. This group's form letter states that "while many factors contribute to today's highly volatile commodity prices, it is clear that excessive speculation is partially responsible."

•    At least 80 comments came from the student-led advocacy group Americans for Informed Democracy. The group's site directs users to a form letter posted on the website Democracy in Action, an e-advocacy site that small and medium-sized nonprofits can use to further their causes. That form letter stated: “As an American citizen, I think that regulating the excessive speculation on commodity markets is incredibly important in making market prices less volatile.”

The CFTC gave the comment letters to the Sunlight Foundation in electronic format. There were 11,858 letters in all that the agency had received at that time. While the comment letter period officially ended in March, the agency has continued to accept letters. The analysis covers 90 percent of the letters that the agency has received as of September 8.

The airline industry would have something to gain from this particular Dodd-Frank rule, said David Berg of the Air Transport Association, which is associated with Stop Oil Speculation Now.

"Jet fuel is the single largest cost component for jet liners,” Berg said. “High oil prices drive high fuel prices. That's one reason why we are interested. More germane here is that most airlines engage in hedging programs and hedging is done to reduce the risk of high jet fuel prices."

Speculation can increase the volatility of the market, and that affects an airline's ability to hedge because the risk is too great, Berg said.

“Speculation in and of itself if not bad,” Berg said. There was one time when the balance of speculators and hedgers were 30 percent and 70 percent, respectively. Those numbers have flipped so that speculation now makes up about 60 to 70 percent of the market, he added.

Stop Oil Speculation Now is comprised of 98 members, which are listed on the group's website. Those members are almost entirely petroleum marketing and airline industry groups. 

Butler, the silver market analyst, has been advocating for stricter position limits for the past 20 years, he says.

“I ran no big campaign to get folks to write in – this was it,” Butler said in an email, linking to the form letter he put on his website. Seeing the number of people who submitted comments based on his letter “was impressive,” he added. 

Butler owns Butler Research LLC, and runs a website with information on the precious metals market that members pay a subscription to access. According to the website, Butler Research provides “fundamental and expert analysis of the gold and silver markets.”

When an agency proposes a rule, the public is invited to comment. In recent years, some groups have become experts in flooding the agencies with comments about controversial rules, by providing sample letters on the Internet and encouraging people to send in similar letters. The groups can be citizen organizations soliciting assistance from their supporters, but often they are backed by big monied interests.

In June, the Administrative Conference of the United States recommended that agencies should consider using content analysis software to "reduce the need for agency staff to spend time reading identical or nearly identical comments."